November is over and we are approaching the end of the year. This turned to be a successful year and I hope the next year will be even better.

However, our November trading returned mixed results. Something I haven’t experienced for the entire year and I am still baffled on what actually happened.

This month we reached our monthly income goal but our account net-liq got a severe hit.

I honestly do not understand why it was happening. Almost all our positions are safe and deep OTM (except a few exceptions in MNK and ESV), yet we saw a huge, almost 50% retreat from the last month account value! Below I am providing you with some details on the account numbers and explanation of what happened.

For November 2016 we planned an income of $3,800 dollars.

And we made $3,818.50.

I am happy about this result. I am not happy about my net-liq large drop though.

Our November dividend income was low. November is our dividend income weak month. The dividend income was $57.10 this month which was in line with other weak months. However, after a few months of dividend income annual drop (due to some dividend reductions) our annual dividend income started rising again.

We are now focusing on ensuring income for our ROTH IRA account which can be then invested into dividend stocks. That’s why we are not opening new dividend stocks trades and just reinvesting dividends. All other cash deposited in the account or generated by selling options is held in cash and waiting. In the next section of this post I am also explaining further in detail what my strategy in the ROTH account is.

Your new trading account will come with a paper money account and will be immediately funded with $5,000 of virtual money for you to test the options trading and if you join our trading group on Facebook you can get a guidance, ideas, and trading education. Before you commit your real hard-earned money you can use the virtual account to test our strategies, learn, and ask all questions you need to learn options trading.

Once you learn and get ready, start trading live account and earn monthly income similar to ours. And we will be happy to assist you with that.

· November 2016 trading results

November trading was successful bringing in income we planned. We generated $3,818.50 and the plan was $3,800.00. And that is great! But what happened next in our account is something I do not understand.

Our net-liq (account net liquidation value) tanked a lot this month. The net-liq lost almost 50% of the previous month value! In October, the account finished with $14,762.53 value and this month it is only $7,674.72; a 48.01% loss!

Where did that come from?

Well, I understand the metrics and ins and outs of net-liq and that it reflects the current value of all open positions in the account, what I didn’t understand which of my positions were actually contributing to such loss.

Almost all my positions are actually making me money. Except a few bad trades in LULU, ESV and MNK I am making more than what the loss of the net-liq was! If you look at the summary from my Dough.com account, many of my trades are profitable.

So where is this loss coming from? I still haven’t figured out. The only cause I could blame would be volatility.

I would understand this drop if I started selling my positions at a loss, but this wasn’t the case. Yes, we did some rolls (rolled a few trades down and away) and these may contribute to this temporary net-liq loss but I doubt the loss was almost $7,000 in rolls!

In other words, our cash rose by 10.30%, our equity rose by 4.65%, yet the net-liq dropped by 48%? There is something fishy here.

Nevertheless, it is just a temporary loss. As long as I keep holding my open positions and those start losing their extrinsic value I will be making more money and the net-liq will start going up again.

The only thing which makes me nervous is, that this situation is actually blocking my available buying power and it is limiting my ability to trade. I wish I could remove some trades, but I cannot (because if I did, I would be closing at a loss).

We are posting our trades in a Facebook group where other traders post their trades too. You can join our Facebook group for free. However, membership in the group is limited to 250 members only. Once all the seats are full new members are admitted only if any old member leaves the group or are removed by administrators.

Here are our trading results for the month:

November 2016 options trading income:

$3,818.50 (150.35%)

2016 portfolio Net-Liq:

$7,674.72 (-48.01%)

2016 portfolio Cash Value:

$24,186.22.03 (10.30%)

2016 overall trading account result:

202.19%

In the past, I had a few readers and traders asking me a question how I could generate an income of $5,000 or $3,000 a month with only $13,000 dollar account and to do so, I would have to take enormous risk.

The truth is that I am not trading $8,000 dollars account only. I trade a lot more than that.

At the beginning of the year when we returned to put selling against dividend stocks strategy we decided to take a loan and trade the borrowed money.

Some people may see this crazy and a no no move. I do not see at it like that at all. I was always looking for possibilities (and I am still looking for them today) how I could raise money for trading. And I met a few traders who did the same thing and took a loan, or sold their property, etc. so they could trade. I still chat time to time with a few via my Twitter account.

I understand that this makes our account very leveraged. Such leverage may pose a lot of risk. But the risk is not in the options trading. There must be a risk involved if you want to make money. If you want a riskless trading, you must put money in a bank. But do not expect any excellent results.

The risk is in you personally and how you trade, how you manage your trades, and how you manage your cash positions.

Our trading rules, strategy, trades and money management give us a lot of confidence in the process and the way I trade our account although I must admit, some time it is a difficult task.

But don’t mistake my confidence with over-confidence and reckless trading!

If you follow our blog for some time you may know that I do not believe in market predictions. I believe that trading is psychological and when trading you must be in a comfort zone. That means that no matter which direction the market goes at any moment in time and no matter what your open trades are doing whether making you money or losing it, you still must feel comfortable with it.

And once you reach that state of mind you will feel comfortable and confident in trading. And with that state of mind it is not a problem to take a loan and trade it to boost the income.

Therefore, I trade a lot bigger account than I am reporting here on this blog. Here, I am reporting our own money only and the loan is excluded.

But to put everything into a proper perspective, I will add the account cash and equity positions with liability/loans so you can see the whole picture.

As of this report, our account is:

Net-Liq

$28,174.72

Cash

$44,686.22

Equity

$52,143.22

2016 Initial margin

$70,000.00

I added these numbers to our blog to My Trades & Income section and you can review them there in real time.

In fact, today, we are trading approx. $100,000 dollars account (buying power with margin)! And thus making $3,818.50 this month is not such large leverage risk. It represents 3.82% of monthly income on the overall available marginable capital.

On the other hand, it represents 13.47% income on the account liquidation value:

Account Net-Liq

Account Incometo Net-Liq %

January 2016

$1,529.96

-67.98%

February 2016

$1,781.32

-4.04%

March 2016

$6,433.69

+5.66%

April 2016

$6,129.93

+15.30%

May 2016

$27,586.11

+4.57%

June 2016

$28,963.35

+8.05%

July 2016

$32,272.45

+17.77%

August 2016

$32,242.00

+7.84%

September 2016

$36,067.35

+14.09%

October 2016

$30,348.96

+11.36%

November 2016

$28,340.00

+13.47%

Average 2016

$21,655.82

+9.60%

I am happy to see that our average monthly return is 9.60% per month on invested capital.

We also use a portion of the monthly revenue to pay the loan off. Our monthly loan payments are $907 a month and the interest rate is 9%. If we continue to make #3,818 a month we make enough money to pay the loan and reinvest the rest. With 9.60% of current monthly income, which is approx. 115.20% annual revenue, paying a 9% loan is acceptable. In other words, we pay 9% on a loan which allowed us to make 115.20%. Not a bad deal.

I plan on writing about this business financing (I call it bootstrapping, although it probably is not) in some of my future posts.

Here are the individual trades from the beginning of the year thruough this month:

The table above shows our real live trades up to date.

They are real trades we really traded with our own real money. Some people do not believe that it could be possible to achieve such results, and called me names, fake, liar, and fraud. But what you see in that table above, is the final result of our trading and our trade management. You want see the entire picture of what happened between opening a trade and closing it. There could be several rolls in between. However, it still indicates our ability to manage our losing trades into winning ones. And that sometimes take time (a lot of time) and additional buying power (if you are adding another leg or converting a trade into a different structure).

As I said, not all trades are immediate winners. Some turn bad the very next day and some require an extensive management and adjustments to end them in green. Mystics, Random Walk academics, and Efficient Market theorists are typically and equally divorced from the reality of the market and trading. Amateurs who love forecasting and mysticism (Alexander Elder, The New Trading for a Living), will not get it and will cal you names.

From our trading records we can report our average trade holding time to be currently 14 days, average P/L 1.21% and 68.94% annualized return per trade.

We also have a plan for 2016 to create an average monthly income from trading:

We continue increasing our average monthly income. Last month we reached our goal of average $2,000 monthly income and now working on reaching our next goal:

Note, these are monthly averages based on 12 month results. The individual monthly results month to month may differ.

We also have a plan for 2016/17 to increase our equity:

by August 2017 plan: $130,000 equity – IN PROGRESS ($52,143.22)

I am interested in applying for portfolio margin for our account. This would allow us to increase our trading (and leverage) and trade more trades and more often. That would allow me to increase income and start trading for a living as a full time trader. With portfolio margin we would be able to trade up to 5 times more than with a standard RegT margin.

I do not have yet experience with portfolio margin account, but my expectations are that with approx. $150,000 equity we will be able to trade up to $600,000 account. With average 9.60% monthly income we should be able to make about $57,600 average monthly income. And that would be a great result from options trading. Income like this would definitely help us to meet our other, investing and investing unrelated goals and dreams.

Here are results of the individual trades we traded this month and my comments:

In November ESV performed quite well. Thanks to a recent OPEC deal the stock jumped up significantly and that allowed me to close a few of my put trades for profit:

I now only hold 8 strike puts and a few calls, so the recent jump in price made me to raise the strikes up and move a few trades away in time. Although the latest price action is not much encouraging, I still hope that I will be able to close those puts and hopefully convert a few calls into puts. If the stock continues down though then I will leave the calls as they are and let them either expire or close for a 50% credit. This is still a waiting game.

I still hold 200 shares of the stock assigned at $11 a share so I hope that the stock continues higher. At that point I will let two call contracts to be assigned (if they reach $11 or $12 strike) and get out of the stock.

Once I am out of the stock as well as all options against this stock, I no longer plan trading options against ESV as the premiums this stock offers are bad and it no longer is what it was when I started to trade ESV in the first place at the beginning of the year.

LULU continues its mediocre performance. There are rumors of the Chapter 11 or take over. However, I do not pay attention much to freaks out there and try to trade what I see. Although what I see in LULU is not making me much happy. The stock dropped hard, I got assigned at $77 a share and now sitting on a losing stocks.

Although the latest price action looks like a consolidation I have a bad feeling that this is just a calm weather before a storm hits. I am heading into earnings and if bad reporting LULU may sink even more.

I hold only one put contract and the rest are calls so as far as options trades I am well positioned for that, what worries me is my stock position which is losing bad. I collected enough premiums to lower my cost basis on the stock so technically I can close this trade and still be ahead with a profit. But I do not want to be taking a loss on the stock although offset by income provided by options.

As of today, my cost basis for LULU is $30.34 a share, so the stock can drop all the way down there before I start losing money. I just hope that this will not happen.

MNK continues giving me a hell on earth. This trade turned into a drag. At some point when it continue falling I converted my puts into calls, then the stock jumped up hard (I didn’t follow why or which pump and dump scheme was in play) so I converted the calls back into puts and as soon as I have done that the stock reversed and fell again:

I have two strangles and since I became a bit tired of those trades I decided to roll one strangle far away in time so I didn’t have to pay attention to it. That strangle has puts in the money. The other strangle is still a few months until expiration and if the stock stays in its current trading range those options will be in a good shape to expire worthless for a full profit.

I hope this will be the outcome as I no longer want to trade this underlying, so I would like to get out of these trades and move on.

TRGP again performed well thanks to OPEC meeting and oil output freeze. This allowed me to close one 46 strike put for 50% credit. Now I have another 2 contracts of 45 strike puts. Originally, I had 46 strike puts but as TRGP dropped hard at the end of the month I decided for a preemptive roll to 45 strike:

As long as the stock stays at its current level or moves higher, I do not have to do anything either. So this will be a waiting game. However, once I get out of this trade, I no longer plan trading this underlying.

WYNN continues its uptrend although at the end of November we saw a retreat from the rally. I hope that this retreat is just temporary and that it will not transfer into selling reaching new lows.

I must admit I am already tired and sick of WYNN. I was trading it for about four months and made the most of my income using this underlying. I collected little over $17,000 in premiums using this stock. It is really amazing.

But it was really a wild ride and I need to rest a bit from this stock. WYNN is very unpredictable and volatile. It can swing from $110 a share all the way down to $80 a share in no time. I rode this stock from those highs all the way down, converting my puts into calls and as soon as I was done converting my trades into calls, the stock stopped its fall, reversed and moved up so fast that I had hard time converting my calls back to puts.

So, I need a rest and clean my head from this stock. I need some lazy stocks which do not move such violently as WYNN. Since many of my trades are far away in time, I have to wait and be closing profitable trades as profits occur.

Analyzing WYNN trades, I can see that it is WYNN which is causing my net-liq drop as many of the recent trade rolls are actually still sitting on a loss (roll price to the original price). So, I need patience and time and the stock moving up to be able to get out of WYNN and stop trading it for a while.

I will not be trading WYNN for some time except managing the existing trades but not opening any new ones. Once I am out of all WYNN trades I plan to stop trading this underlying for some time. But I may come back to it at some point.

STRATEGY TWEAK

As I mentioned in the STX section above I decided to tweak my strategy a bit.

The premise of the strategy is still the same: sell puts as long as you get assigned, once assigned, keep the stock, collect dividends, and sell covered calls as long as you get assigned.

But I used trade 45 days to expiration options and options with margin requirements less than $1,500 per contract.

And this is what I am going to change.

I screened my watch list to pick stocks I wanted to trade next and which met the following new criteria:

1) must be a dividend stock

2) margin requirement per contract < $1,000

3) premium per contract $0.40 or more (per 7 day contract)

4) must trade weekly options

I will be trading weekly options with those stocks using the following time schedule:

Monday to Tuesday I will attempt to open a trade with the same week Friday expiration if credit is large enough (0.40>=)
Wednesday to Friday I will attempt to open next Friday expiration.

I will trade strangles (opening naked calls & naked puts) near the money. I will let untouched leg expire or buy back for 0.05 debit.

I will hold both legs until Friday expiration. I will not roll it if it gets in the money, unless it gets in the money by more than 4% and it will be evident that the stock will not be able to recover. In that case I may choose a preemptive roll.

If on Friday expiration any leg is in the money I will roll that leg into the next week (or two weeks max if needed) and sell a new opposite leg against it.

The new trade will either be a new strangle, straddle, or inverted strangle (depending on the touched leg position at expiration – if ITM but near the money, it will be a strangle or straddle, if deep ITM it will be an inverted strangle).

And here are the winners I will be further reviewing for these trades:

ADM, ASHR, COP, OIH, STX, WFM, X,

The stocks above have margin requirement from $400 to $700 per contract and offer a premium from 36 to 60 per 7 day contract.

If you like these trades and want to trade them in your own account and start making money consistently every month, open an account with OptionsHouse and start trading trades we trade. It is called learning by doing. When I started learning trading I learned in real time from a trader who allowed me to mirror his trades and provided explanation.

When you open an account you will immediately gain access to a virtual account in which you can test all our trades for yourself and see if they are a real deal trades or just a bogus. But once you learn trading options you can enjoy a consistent monthly income!

But let me also warn you. Trading options is not a passive investing. It takes a lot of time and effort. You must learn a lot, study, practice, and pay attention to your account on daily basis. You must record your trades, review them, and eventually get ready to adjust them. Once you learn that, and become a trader, your income will be a well deserved and it will become easy for you to achieve it.

You will become your own boss. No more making someone else rich. No more deals with rude clients, angry boss, or begging for a raise so you can survive providing for your family or to make ends meet. You will work for yourself and if you ever decide to work for someone else it will be because you want and not because you must.

Yes, I was scared at first a lot thinking what would I do if things go bad, but later created a plan how to avoid it in this case and be able to pay the loan off even if the trading on’t work well. Fortunately I am doing well (knocking on the wood) and I am able to use proceeds only to pay the loan off.
Thanks for stopping by!!

First of all, an amazing month for total passive income. You are really killing it with those premiums. Just when I think I’m getting the hang of options I learn about net-liq which just complicates things for me. This is the first time I even read about this phrase. I’m still going to watch your trades and others online and see how things unfold. I appreciate these detailed updates.

Keith,
thank you for your kind words and commenting. The trading really picked up nicely although I feel stretched a bit and that makes me nervous. However, I have been feeling like that since June or July, always telling myself “This time I won’t make it” and yet I could come up with nice profit. I hope and pray that it will stay like that.
I recommend you to learn about options and try a few small trades, step by step, naked puts at first in a paper account so you learn all ins and outs before you commit real money. If you want, you can email me, we can stay in touch via emails and I can help you and navigate you. Believe me, options are exciting and profitable trading but you must know very well what you are doing. If you don’t, then it will become risky trading.

I appreciate your offer to help me out. Paper trading will always be the best way to go about learning but I know one thing, I would only limit myself to cash secured puts or covered calls exclusively for a while. Naked sounds too scary for me.

Keith, you still can trade “naked” and yet have enough cash to treat the trade as cash secured. For example, when you sell a put against STX, with strike $40. Your broker will block approx. $700 options buying power, but if you keep $4,000 in reserves in case of assignment, and you get assigned, you will only pay $1200 to own the stock and you still will have $2,800 in reserves.